Retail inflation contracts to 2.3% in Nov; industrial output zooms to 8.1% in Oct

Our Bureau New Delhi | Updated on December 12, 2018 Published on December 12, 2018

Economists say it is early to assess if there will be policy rate cut

Retail inflation dipped further to 2.33 per cent in November while industrial output zoomed to over 8 per cent during October, according to government data released on Wednesday.

Lower inflation means possibility of a policy rate cut. However, it is too early to predict a rate cut as the Monetary Policy Committee (MPC) is scheduled to review credit and monetary policy in February.

At the same time, oil prices have bottomed out raising fear of a rebound which, in turn, will raise the inflationary expectations. However, the bad news is that food prices continue to be in a disinflationary mode and that could further aggravate rural distress.

A detailed analysis of retail inflation as represented by the Consumer Price Index (CPI) revealed that inflation for vegetable recorded at (-)15.59 per cent while that for pulses, sugar and eggs were 9.22 per cent, 9.02 per cent and 3.92 per cent (all in negative zone). All these took Consumer Food Price Index (CFPI) further into the negative territory (-2.33 per cent). Core consumer inflation was about 5.7 per cent in November, compared with roughly 6.1 per cent in October. Core inflation is the change in costs of goods and services, but does not include those from the volatile sectors such as food and energy.

Aditi Nayar, Principal Economist at ICRA, said the sharp easing in the headline CPI inflation reflects a combination of favourable factors such as the correction in retail fuel prices, discomfiting factors such as a deeper disinflation in food prices, and base effects related to the waning impact of the HRA revision for Central government employees. However, factors such as weak post-monsoon rainfall and lagging Rabi sowing cast some doubt on how long food prices would remain in the disinflation zone. “While it is too early to assess whether a rate cut would be forthcoming in the February MPC review, there is a significant likelihood of a change in the monetary policy stance back to neutral from calibrated tightening. This is likely to serve as a precursor to a repo rate cut in Q1 FY2020, if inflationary risks remain in check,” she said.

Industrial output

Industrial output was almost double that of a downwardly revised 4.47 per cent year-on-year increase in September. 21 out of 23 industry groups in the manufacturing sector have shown positive growth during the month of October compared to the corresponding month of the previous year. The industry group ‘Manufacture of furniture’ has shown the highest positive growth of 41.0 per cent followed by 39.0 per cent in ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ and 30.2 percent in ‘Manufacture of computer, electronic and optical products’.

Madan Sabnavis, Chief Economist at CARE Ratings, said the October growth was due to the base effect of 1.8 per cent recorded during corresponding period of previous year. In November 2017, growth was 8.8 per cent and in December 2017 it was 7.1 per cent. This will statistically put pressure on the growth rate this year, he said while adding that growth for the year as a whole could be in the range of 5-6 per cent. “The liquidity shortage witnessed in the system which should have affected the SMEs and auto sector has not had any impact this month. Therefore, it would be instructive to observe if November would reflect the same. Also, with the base effect kicking in the reverse, growth will be pressurised,” he said.

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Published on December 12, 2018
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